pob class 9

8/8/2019 POB Class 9

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Principles of BusinessPrinciples of Business(BUS101)(BUS101)Donald R. Simon, Esq.Donald R. Simon, Esq.

Adjunct Professor Adjunct Professor - - Digital PhotographyDigital PhotographySpring, 2009Spring, 2009



Principles of BusinessPrinciples of Business - - Class 9Class 9

Go over results of theGo over results of theMidterm.Midterm.

Lecture: IntroducingLecture: Introducing Accounting to Non Accounting to Non- - Accounts Accounts

Lecture: Making SenseLecture: Making Senseof Financial Statementsof Financial Statements

Lecture: BusinessLecture: BusinessBudgetingBudgeting

Assignment: Accounting Assignment: AccountingQuiz.Quiz.




Principles of AccountingPrinciples of Accounting

There are 2 parts to your biz:There are 2 parts to your biz:

Doing the things you love; andDoing the things you love; and

Doing the things you hate.Doing the things you hate.

Unless you are an accountant,Unless you are an accountant,accounting falls into the latter.accounting falls into the latter.

Purpose of this unit is not to makePurpose of this unit is not to makeyou a miniyou a mini- -accountant.accountant.





To understand the importance ofTo understand the importance oftracking the finances of your biz totracking the finances of your biz to

know how well your biz is doing, forknow how well your biz is doing, fortaxes, for security purposes, etc.taxes, for security purposes, etc.

A way of gauging the financial health A way of gauging the financial healthof your biz.of your biz.

Goes beyond determining whether aGoes beyond determining whether abiz is profitable or unprofitable.biz is profitable or unprofitable.





Most biz employ an accountant on aMost biz employ an accountant on afullfull--time or parttime or part- -time basis.time basis.

Responsible for:Responsible for:1.1. Vital back office functions such as: Vital back office functions such as:

payroll,payroll,

cash inflows,cash inflows,

cash payments,cash payments,

purchases and inventory, andpurchases and inventory, and

property records.property records.





Responsible for:Responsible for:

2.2. Preparation of federal and state taxPreparation of federal and state tax

returns.returns.3.3. Designing and maintaining internalDesigning and maintaining internal

controls to monitor billing and othercontrols to monitor billing and otheraccounting functions.accounting functions.

4.4. Prepare financial statements that helpPrepare financial statements that helpowners and stockholders measure theowners and stockholders measure thefinancial health of the biz during a givenfinancial health of the biz during a givenperiod of time.period of time.





Biz Transactions and EventsBiz Transactions and Events

Great deal of accounting focuses on bizGreat deal of accounting focuses on biz

transactions.transactions.Transactions are economic exchangesTransactions are economic exchangesbetween the biz and the people and otherbetween the biz and the people and otherbiz with which the biz deals.biz with which the biz deals.

Even a small biz generates a surprisinglyEven a small biz generates a surprisinglylarge number of transactions, all of whichlarge number of transactions, all of whichmust be recorded.must be recorded.






Types of economic exchanges:Types of economic exchanges:

1.1. Customers;Customers;

2.2. Employees;Employees;

3.3. Suppliers and vendors;Suppliers and vendors;

4.4. Debt sources of capital;Debt sources of capital;5.5. Equity sources of capital; andEquity sources of capital; and

6.6. The government.The government.






Major, oneMajor, one- -time transactions are referredtime transactions are referred

to asto as eventsevents and also must be recorded,and also must be recorded,such as:such as:

1.1. Losing a lawsuit and ordered to payLosing a lawsuit and ordered to paydamages.damages.

2.2. Flood loss.Flood loss.

3.3. Abandon a product or service line and Abandon a product or service line anddownsize its workforce.downsize its workforce.





Financial Statements:Financial Statements:

1.1. Statement of financial condition (orStatement of financial condition (or

balance sheet);balance sheet);2.2. Income statement (or profit and lossIncome statement (or profit and loss

statement); andstatement); and

3.3. Cash flow statement.Cash flow statement.

All should be prepared at least annually, All should be prepared at least annually,but preferably quarterly.but preferably quarterly.







balance sheet)balance sheet): : Reports the biz s assets, liabilities andReports the biz s assets, liabilities and

owner s equity on a given date.owner s equity on a given date.

Assets Assets: financial resources of the biz,: financial resources of the biz,including land, vehicles, equipment,including land, vehicles, equipment,intellectual property, etc.intellectual property, etc.

Records the $$$ paid for the assets andRecords the $$$ paid for the assets andreports their depreciation.reports their depreciation.







balance sheet)balance sheet): : LiabilitiesLiabilities: obligations the biz has incurred.: obligations the biz has incurred.

Owners equityOwners equity: owner s share of the biz: owner s share of the bizresources.resources.

Owner s equity: includes both $$$ theOwner s equity: includes both $$$ theowner has personally put into the biz andowner has personally put into the biz andthe owner s earnings that he/she hasthe owner s earnings that he/she hasdecided to leave in the biz (i.e., retaineddecided to leave in the biz (i.e., retainedearnings ).earnings ).







balance sheet)balance sheet): : Balance Sheet FormulaBalance Sheet Formula: Assets = Liabilities: Assets = Liabilities

+ Owner s Equity.+ Owner s Equity.

THIS IS ALWAYS TRUE!THIS IS ALWAYS TRUE!

All of the biz s resources (i.e., assets) All of the biz s resources (i.e., assets)either belong to the owner (i.e., owner seither belong to the owner (i.e., owner sequity) or are owed to another entity (i.e.,equity) or are owed to another entity (i.e.,liabilities).liabilities).






2.2. Income statement (or profit and lossIncome statement (or profit and loss

statement)statement): : Summary of sales revenue and expensesSummary of sales revenue and expenses

that determines the profit (or loss) for athat determines the profit (or loss) for agiven period.given period.

It gives the biz s bottom line.It gives the biz s bottom line.

Gets the most attention from biz managersGets the most attention from biz managersand investors.and investors.

Itemizes expenses to help reduce taxItemizes expenses to help reduce taxliability.liability.






3.3. Cash flow statementCash flow statement: :

Shows the inflow and outflow of cashShows the inflow and outflow of cashduring a given time.during a given time.

Another financial sheets focus on items of Another financial sheets focus on items ofvalue that are not cash in nature.value that are not cash in nature.

Records how liquid the biz is.Records how liquid the biz is.






3.3. Cash flow statementCash flow statement: :

Too much $$$Too much $$$: biz should direct $$$ into: biz should direct $$$ intointerestinterest- -bearing investments or expand itsbearing investments or expand itsoperations.operations.

Too little $$$Too little $$$: biz should borrow more $$$: biz should borrow more $$$or limit some of its expenditures.or limit some of its expenditures.





G.A.A.P.G.A.A.P.

1.1. GGenerallyenerally AAcceptedccepted A Accountingccounting P Principles.rinciples.

2.2. Describes basic methods to measure profitDescribes basic methods to measure profitand to value assets and liabilities.and to value assets and liabilities.

3.3. What information should be disclosed inWhat information should be disclosed infinancial statements.financial statements.

4.4. You are entitled to assume that a biz has You are entitled to assume that a biz hasused GAAP in reporting its financial healthused GAAP in reporting its financial healthunless the biz make very clear that it hasunless the biz make very clear that it hasused some other method than GAAP.used some other method than GAAP.




Business BudgetingBusiness Budgeting





Most likely, you won t have any ideaMost likely, you won t have any ideahow high your monthly expenses are.how high your monthly expenses are.

You ll just hope that good work will You ll just hope that good work willcome in, making your overhead a noncome in, making your overhead a non- -issue.issue.

You ll deal with so many financial You ll deal with so many financial

stressesstresses latelate- -paying clients, hugepaying clients, hugeexpenditures, and a massive amountexpenditures, and a massive amountof credit card debtof credit card debt no wonder smallno wonder smallbiz operators avoid the $$$ issue.biz operators avoid the $$$ issue.





In order to determine your fees, youIn order to determine your fees, youneed to know your monthly costs.need to know your monthly costs.

Operating expenses include:Operating expenses include:Rent;Rent;

Utilities;Utilities;

Payroll;Payroll;Insurance;Insurance;

Paper and supplies; andPaper and supplies; and

Marketing expenses.Marketing expenses.





Reducing your tax liability is anotherReducing your tax liability is anotherreason to keep track of expenses.reason to keep track of expenses.

As you ll learn next week, As you ll learn next week,photographers are taxed on theirphotographers are taxed on their net netincomeincome (which is gross income minus(which is gross income minusoperating expenses).operating expenses).

The only way to drive that taxableThe only way to drive that taxableincome down is to keep track of yourincome down is to keep track of yourfixed costs.fixed costs.





Start as soon as possible to track yourStart as soon as possible to track yourexpenses.expenses.

Don t wait until tax time!Don t wait until tax time! Find a system of collecting biz receiptsFind a system of collecting biz receipts

that works for you.that works for you.

Keep a separate biz credit card andKeep a separate biz credit card andbank account.bank account.





Use a spreadsheet program like ExcelUse a spreadsheet program like Excelor accounting software like Quicken,or accounting software like Quicken,QuickBooks, or Mind Your Own Biz.QuickBooks, or Mind Your Own Biz.

Another resource for figuring Another resource for figuringoverhead is the NPPA Cost of Doingoverhead is the NPPA Cost of DoingBusiness calculator on their website.Business calculator on their website.

Ultimately, the goal of all this is toUltimately, the goal of all this is toprovide enough information so thatprovide enough information so thatone can generate a profit and lossone can generate a profit and lossstatement.statement.





Tips for saving on overhead:Tips for saving on overhead:

1.1. Save on rent and payrollSave on rent and payroll: share space and: share space and

staff, or look for interns for office help.staff, or look for interns for office help.2.2. Don t buy unDon t buy un- -needed equipmentneeded equipment: don t use: don t use

the old it s a tax writethe old it s a tax write- -off excuse.off excuse.

3.3. Don t always think you need top of theDon t always think you need top of theline equipmentline equipment: splurge on a printer, but: splurge on a printer, butsave on a scanner, for example.save on a scanner, for example.

4.4. Check for stateCheck for state- -sponsored small bizsponsored small bizprogramsprograms: like for health insurance.: like for health insurance.





Tips For Saving on Overhead:Tips For Saving on Overhead:

5.5. Don t obsess over every pennyDon t obsess over every penny: keep an: keep an

eye on little things that come up regularly.eye on little things that come up regularly.6.6. Don t assume overhead will decrease in aDon t assume overhead will decrease in a

cheaper city cheaper city : lighter rent can get offset: lighter rent can get offsetby weaker fees in smaller markets.by weaker fees in smaller markets.

7.7. Invoice clients for rentalsInvoice clients for rentals: on your own: on your ownequipment, if possible.equipment, if possible.

8.8. Share resourcesShare resources: hardware and knowledge: hardware and knowledgewith fellow photographers.with fellow photographers.





Don t let $$$ issues hinder yourDon t let $$$ issues hinder yourcreativity.creativity.

Excel spreadsheets and P&Ls mayExcel spreadsheets and P&Ls mayseem uninspiring, but controlling yourseem uninspiring, but controlling youroverhead will likely enhance, notoverhead will likely enhance, notlimit, your creativity.limit, your creativity.

Can help from having to compromiseCan help from having to compromiseyour work and take jobs that aren tyour work and take jobs that aren tright for you just to cover the cost ofright for you just to cover the cost ofyour biz.your biz.




Principles of AccountingPrinciples of Accounting Assignment (Due 3/16/09) Assignment (Due 3/16/09): :

1.1. Accounting quiz. Accounting quiz.




Lecture: Taxes, Taxes,Lecture: Taxes, Taxes,and More Taxes.and More Taxes.

Assignment: no Assignment: noassignment.assignment.

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